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I.Sale of Partnership Interests, Not Land In negotiating the terms of the purchase and sale agreement (PSA), remember it is a sale of partnership interests and not the sale of a project and the purchase contract must reflect that. A standard land PSA should not be used for an acquisition of interests, as the final agreement/transaction will need to be able to pass IRS scrutiny to avoid the transaction being deemed a sale of the project, violating the 10 year rule. For example, such sections of the PSA governing the definition of sale property, the purchase price, the required closing documents, the closing costs and prorations, and representation and warranties, must be carefully constructed to support the determination that the project is not being sold.

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Things to keep in mind: a)Any agreements or documents should be entered into and executed by the seller partners and not the partnership. b)The purchase price should be for the value of the interests being sold and not partnership assets or debts (including partnership debts owed to the withdrawing seller partners). However, there are ways to structure the transaction to provide that the partnership debts are paid at closing, as applicable. c)The partnership should not incur any costs or debts in connection with the acquisition and sale of the interests.

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II.Structuring the Purchaser Entities If both the general partner interest and the limited partner interest of a partnership are being sold, the two interests need to be purchased by two separate entities. While the two entities can be affiliated, the two entities cannot be controlled by the same third party, nor can one entity control the other entity. This is important as to avoid a situation where one entity is disregarded as separate from the other entity for federal income tax purposes, which would result in the termination of the partnership.

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III.Know What You Are Purchasing In addition to the obvious, this is especially important if the purchaser intends to apply for 4% credits after Year 15. The purchaser should verify (and have counsel confirm) the interests that are being purchased (i.e. by doing due diligence, reviewing the partnership agreement, any amendments, and tax returns, etc.) to avoid 10% test issues. The purchaser should look at the sellers cashflow and sale/refinancing distributions, capital account, as well as, examine any fees that are paid to the seller that could be deemed for tax purposes to be an additional interest or share of cashflow, and thus, result in a seller interest 10% or greater.

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Know What You Are Purchasing (Cont.) Once an incoming partner assumes an interest of 10% or more of the owner partnership or any item of the partnership, the related party in the new partnership that resyndicates the project will be limited to 9.9% of all items in the new partnership. Furthermore, the related party would be limited to the 9.9% return, even if the purchasers interest is subsequently reduced prior to the resyndication (i.e. the purchaser could not simply amend the partnership agreement after its purchase of the interest to reduce its interest to avoid the 9.9% limitation).

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IV.Posting of a Section 42(j)(6) recapture bond The Code requires that any partner selling 100% of its interest in a partnership prior to the end of the compliance period (Year 15), either post a surety bond for the remainder of the compliance period plus 58 additional months or pay back 1/3 of the credits the partner actually received doing the credit period. The seller will require that a surety bond be posted at closing and that the purchaser bear the cost of such bond, as a closing cost. The bond protects the seller from having to pay back any money to the IRS in the event of a recapture.

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V.Obtain Necessary Consents All parties, who need to consent to the transfer of interest (lenders, bond purchaser, HUD, state bond and/or credit allocating agency, other partners of the partnership, etc.), should be identified as soon as possible and the seller and purchaser should agree on who will take responsibility for obtaining the various consents and paying the costs associated with the consents.

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Obtain Necessary Consents (Cont.) In addition to reviewing the partnership and the project encumbrance documents (including the loan documents, regulatory agreements and extended use agreement) to determine the parties from which consent will be required, purchasers should review the documents to identify their obligations as the incoming general or limited partner. For example, lenders who have required the seller general partner to pledge its interest as collateral or provide guarantees in connection with a loan will require that any new general partner assume such outstanding obligations, as a condition of consent. Furthermore, there may be guarantees to the investor limited partner that an incoming general partner will need to assume from the seller general partner.

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VI.Transfer Taxes Some jurisdictions, in addition to imposing transfer taxes or fees in connection with the sale of real property, will also impose such taxes in connection with the transfer of partnership interests/member interests. Thus, it is important to determine if such a tax will be levied so the seller and purchaser can negotiate who will pay the taxes and the taxes can be budgeted for by the applicable party(ies).

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VII.PILOT/Tax Abatement or Exemption Agreements If a project is subject to a pilot, tax abatement or exemption agreement, the purchaser will need to determine if the consent from the local municipality to the transfer or other process (e.g. an assignment and assumption agreement by the seller and purchaser) is required in order for the partnership and project to continue to benefit from the tax abatement or exemption.